Micronance loan defaults surged in 2024-25: Sa-Dhan data, pg13.

Key Highlights:

• Delinquency rate (overdue >30 days) rose to 6.2% in 2024–25 from 2.1% in 2023–24.
• Loans overdue by more than 90 days increased to 4.8%, up from 1.6% in the previous year.
• Total microfinance loans outstanding: ₹7.57 lakh crore (as of March 2025).
• Of this, ₹2.3 lakh crore belongs to rural borrowers, where 6.4% were overdue by >30 days.
• For semi-urban and urban borrowers, delinquency stood at 6.1% and 6.0%, respectively.
• Bihar performed the worst in both outstanding loan volume and repayment defaults.
• Industry-wide rise attributed to post-pandemic stress, inflation, and uneven monsoon effects on rural incomes.

Detailed Insights:

• Sectoral Trends:
  • Microfinance institutions (MFIs) saw repayment stress across rural SHGs and JLGs (Joint Liability Groups).
  • High household indebtedness and reduced cash flow in low-income groups contributed to the trend.
• Regional Concentration:
  • Bihar, Uttar Pradesh, and West Bengal emerged as top contributors to NPAs in microfinance.
  • Eastern and northeastern states saw the steepest delinquency rise due to economic fragility.
• Operational Risk:
  • Higher defaults threaten the sustainability of NBFC-MFIs and Small Finance Banks that heavily depend on microcredit portfolios.
  • Portfolio-at-Risk (PAR 90) — a key stability metric — nearly tripled in a year.
• Policy Concerns:
  • Rising defaults could reverse years of progress under financial inclusion programmes, particularly among women-led enterprises.
  • Industry demands regulatory forbearance, improved credit-risk assessment, and state-level relief packages for distressed borrowers.

Scientific/Technical Concepts Involved:

• Delinquency Rate: Percentage of total loans overdue beyond a defined period (30, 60, or 90 days).
• Portfolio at Risk (PAR): A measure of credit risk — proportion of outstanding loans with payments overdue by more than 30/90 days.
• NBFC-MFIs: Non-Banking Financial Companies that provide microcredit to low-income borrowers without collateral.
• Financial Inclusion Index: Measures the availability and accessibility of banking and financial services across demographics.